Desert Hot Springs, which is near Palm Springs, filed for bankruptcy in 2001 after losing a multimillion dollar lawsuit and still servicing $9.7 million of bond debt issued to fund its exit from Chapter 9 bankruptcy.

In a report issued last week, Aguer said bankruptcy was a real option under consideration, although on Tuesday she expressed hope that the city could avoid that fate this fiscal year.

Aguer said nearly 70 percent of the city's budget was consumed by police costs, most of which were spent on salaries and pension payments to the California Public Employees' Retirement System, or Calpers.

The fate of other cities struggling with pension costs - including Desert Hot Springs - will add to the pressure for pension reform, said Karol Denniston, a bankruptcy attorney in San Francisco.

"What is happening in Desert Hot Springs, and San Bernardino, are not going to be highly unusual events," Denniston said. "Calpers keeps increasing costs and many of these cities have cut costs down to where there is nothing else left to cut."

An outside consultant's report earlier this year warned Desert Hot Springs that its pension costs were dangerously high.

Detroit, in Michigan, and Stockton and San Bernardino in California, have all struggled to meet their rising pension obligations. Managers in Detroit are seeking a judge's permission to slash pension benefits.